AI’s Growth Potential Has Helped Power a More Than 140% Rally for This Surprising Stock. Does It Still Have Fuel to Keep Heading Higher?

AI is a revolutionary technology that can enhance productivity and cut costs. This has led companies to invest billions in AI chips for training models and running applications. The surge in AI investment has boosted semiconductor stocks like Nvidia, but other unexpected beneficiaries are emerging, such as Constellation Energy (NASDAQ: CEG). The leading nuclear power producer has seen its stock soar over 140% in the past year.

AI applications require vast amounts of data to train models and substantial power to operate specialized chips like those from Nvidia. This has fueled a growing demand for data centers to house AI servers and processes. Data centers are energy-intensive facilities, consuming significantly more energy than typical office buildings. The rise in power demand from AI could lead to a 160% increase in data center power demand by 2030, necessitating a mix of renewable and baseload power sources like natural gas and nuclear energy.

Constellation Energy, as the largest producer of carbon-free energy in the US, stands to benefit from the growing demand for nuclear energy to power data centers. The company is in talks with major tech firms to supply power for their AI data centers, potentially driving further income growth. Constellation Energy expects to grow its base earnings by over 10% annually through 2028, with additional opportunities in renewable energy and nuclear power on the horizon.

While Constellation Energy has significant growth potential, its current valuation is high, trading at a forward P/E ratio of over 28.5 times. This could pose a risk if AI power contracts fail to materialize or if the company faces unexpected challenges. Investors may want to monitor the situation and consider other utility stocks with AI-powered growth potential.

In conclusion, AI’s growth potential has propelled Constellation Energy’s stock rally, but the company’s valuation raises concerns. While the AI craze could continue to drive up shares, investors should tread carefully and consider alternative investment options in the utility sector.